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Consumer confidence plunges to lowest on record

(AP) - Layoffs, plunging home prices and tumbling
investments have pushed consumer pessimism to record levels in
October, a private research group said Tuesday. Wall Street shook
it off, though, focusing instead on higher global markets amid
optimism the Federal Reserve will ease interest rates further.

The Conference Board said the consumer confidence index fell to
38, down from a revised 61.4 in September and significantly below
analysts' expectations of 52.

That's the lowest level for the index since the Conference Board
began tracking consumer sentiment in 1967, and the third-steepest
drop. A year ago, the index stood at 95.2.

Wall Street, which has come to expect bad news on the economy,
took the report in stride. The Dow gave up some of its early gains
but was still up about 2 percent in midday trading, while the
broader S&P 500 index rose 1.7 percent.

Investors are expecting the Federal Reserve to cut its target
interest rate Wednesday by up to one-half a percentage point to 1
percent after its two-day meeting that began Tuesday.

“These numbers are extraordinarily awful.”

Ian Shepherdson, economist

In addition, European and Asian financial markets were up
significantly Tuesday on expectations of the cut.

The news was not good for Main Street, though.

"Consumers are extremely pessimistic," said Lynn Franco,
director of the Conference Board's Consumer Research Center. "This
news does not bode well for retailers who are already bracing for
what is shaping up to be a very challenging holiday season."

Separately, a closely watched index of home prices fell by its
steepest ever annual rate in August.

The Standard & Poor's/Case-Shiller 20-city housing index dropped
a record 16.6 percent from August last year, the largest drop since
its inception in 2000.

The 23.4-point drop in the consumer confidence index from
September to October is the steepest since it fell 36.9 points from
October 1973 to December 1973, when the economy was in the throes
of a severe recession.

Then, the index was measured every two
months. The index dropped 24.3 points from December 1969 to
February 1970, Franco said.

Household wealth has taken huge hits from the stock market's
sharp drop this month along with the extended decline in home
prices. The S&P 500 has fallen about 40 percent so far this year.

That, in turn, appears to be causing consumers to significantly
scale back their expectations for the current economy and
short-term future.

The Conference Board said its present situation index decreased
to 41.9 in October from 61.1 last month, while the expectations
index, which measures consumers' outlook for the next six months,
plummeted to 35.5 from 61.5.

"These numbers are extraordinarily awful," Ian Shepherdson,
chief U.S. economist at High Frequency Economics, wrote in a note
to clients.

But they may not persist. The drop in the expectations index
likely reflects the steep drop in stock prices earlier this month
and that probably won't happen again, he added.

But most economists expect the labor market to continue to
deteriorate with the unemployment rate projected to rise to 8
percent or higher next year from its current level of 6.1 percent.

On Tuesday, Whirlpool Corp. said it will cut 5,000 jobs. That's
on top of other recent layoffs of thousands of workers by Xerox
Corp., drugmaker Merck & Co. Inc. and financial services firm
National City Corp.